2023 (7) TMI 1280 - AT - Income Tax

Unexplained cash credit u/s 68 - reliance on the report of Inspector that parties are not available at the address provided by assessee - Rejection of books of accounts - HELD THAT - AO has not referred the contents of reply and conveniently overlooked and simply rejected such contention. AO straightway proceeded to make the addition u/s 68 by making reliance on the report of Inspector that parties are not available at the address provided by assessee. It is settled position that for making addition u/s 68, maintenance of books of account is compulsory and any sum found to be credited and the name of creditors which remained outstanding is treated as cash credit. Assessee right from the beginning has a clear stand that he made sales to the impugned debtors in A.Y. 2015-16 and the amount was reflected in sundry creditors in the audited balance sheet as on 31/03/2015 so the books of account of current year cannot be rejected when books of account of preceding year was duly audited and debtors were appearing in the audited financial statement. Sales made during the earlier year were supported by bills and challans. We find merit in the contention of assessee that in the course of assessment proceedings, the assessee filed sales register for financial year 2014-15, copies of bills and ledger accounts of the parties. Assessee also filed cash book of current year where sale proceeds were received from debtors and creditors. No defects were found by AO in such cash book. AO made addition u/s 68, which is not justifiable as the impugned amount was brought to tax twice, firstly on account of sales and secondly by treating it as unexplained. We find merit in the alternative plea of the ld AR for the assessee that if the receipts from the debtors are not accepted as genuine, the deduction should be given for trading loss as in case of such hypothesis amount of cash on hand added by Assessing Officer is not existent and therefore, deduction of trading loss/bad debts is required to be given against deemed income. Thus, in view of the afforesaid factual and legal position, the grounds of appeal raised by the assessee are allowed.

Summary

Issues Involved:
1. Addition of Rs. 24,91,375/- as unexplained cash credit under Section 68 of the Income Tax Act, 1961.
2. Rejection of books of account by the Assessing Officer.
3. Legitimacy of the penalty levied by the Assessing Officer.

Issue 1: Addition of Rs. 24,91,375/- as unexplained cash credit under Section 68 of the Income Tax Act, 1961

The assessee filed a return of income for AY 2016-17 declaring an income of Rs. 3,23,570/-. During the assessment, the Assessing Officer noted a cash deposit of Rs. 62.00 lacs during the demonetization period and scrutinized the case. The assessee claimed the cash was received from various parties, but failed to furnish documentary evidence to prove the identity, creditworthiness, and genuineness of the transactions. Notices issued under Section 133(6) to verify the creditors' addresses were returned unserved. The Assessing Officer added Rs. 24,91,375/- as unexplained cash credit under Section 68, as the assessee failed to substantiate the claims.

Issue 2: Rejection of books of account by the Assessing Officer

The assessee argued that the Assessing Officer rejected the cash book without invoking Section 145 of the Act. The assessee maintained that the cash was received from sundry debtors, which were part of the audited balance sheet for AY 2015-16. The ld. CIT(A) upheld the rejection, stating that the assessee did not provide any explanation about the nature and source of the amount credited. The Tribunal noted that the Assessing Officer did not find any defects in the cash book and that the impugned amount was taxed twice'first as sales and then as unexplained cash credit.

Issue 3: Legitimacy of the penalty levied by the Assessing Officer

The assessee contended that the addition under Section 68 was not justified as the amount was already accounted for as sales in the previous year. The Tribunal found merit in the assessee's argument that the amount was reflected in the audited balance sheet and that taxing it again would result in double taxation. The Tribunal also considered the alternative plea for trading loss/bad debts deduction if the receipts from debtors were not accepted as genuine.

Judgment:

The Tribunal concluded that the addition under Section 68 was not justifiable as the impugned amount was already taxed as sales. The books of account for the current year could not be rejected when the preceding year's books were duly audited. The Tribunal allowed the appeal, stating that the grounds raised by the assessee were valid.

Conclusion:

The appeal of the assessee was allowed, and the addition of Rs. 24,91,375/- as unexplained cash credit was deleted. The Tribunal emphasized that the amount was already taxed as sales in the previous year, and taxing it again would result in double taxation. The rejection of books of account without invoking Section 145 was also deemed unjustified.